National View: The risk of tougher sanctions on Russia

Energy politics underlie the explosive Ukraine crisis, as Europeans weigh U.S. calls for tougher sanctions against the ability of Russia to disrupt gas supplies this winter.

DAVID IGNATIUS

Energy politics underlie the explosive Ukraine crisis, as Europeans weigh U.S. calls for tougher sanctions against the ability of Russia to disrupt gas supplies this winter.

The dilemma for European governments increased this week, as the Obama administration announced strong new penalties against the Russian energy and financial sectors. Europe's initial response was tepid, in a sign that many of its governments fear Moscow's energy leverage more than U.S. displeasure.

The Russians turned up the pressure valve, too. Prime Minister Dmitry Medvedev called the U.S. sanctions "evil" on Thursday and warned: "We may go back to the 1980s in our relations with the states that are declaring these sanctions."

The catastrophic risks of the Ukraine confrontation were highlighted Thursday by the shoot-down of a Malaysia Airlines passenger plane flying near the Russia-Ukraine border. Ukrainian government officials and pro-Russian separatists initially traded blame for the disaster, which showed the potentially devastating consequences as the Ukraine confrontation escalates.

Russia's dominance as an energy supplier to Europe is its economic trump card in this fight, at least in the short run. European governments may be willing to squeeze Moscow, but not so tightly that they risk a severe shortage of gas supplies.

A stark preview of what could be ahead was prepared last month by Total, one of Europe's largest energy companies. The unpublished study, provided by a company official, shows that by scrambling, Europe could cope with a cutoff of Russian gas exports through Ukraine this winter. But it would be severely affected by a total halt in Russian deliveries.

The Total study estimated that about 30 percent of Europe's natural gas comes from Russia, and that more than half this volume is transported through Ukraine. If Russia interrupted these Ukraine flows, the study forecast that it would be "feasible" to compensate through adjustments. These would include: use of gas stored in such countries as Italy and Hungary; transport of Russian gas through two alternative corridors, the Yamal pipeline through Belarus and a Baltic line known as Nord Stream; increased gas shipments from Norway, the Netherlands and North Africa; and increased imports of liquefied natural gas (LNG).

This coping scenario may sound reassuring, but the Total study notes that it would impossible without a "collective and coordinated approach" in Europe and that "cooperating with Gazprom [the Russian energy giant] is essential." Unless Gazprom agrees, it would be impossible to reroute flows through the Baltic and Belarus pipelines, for example.

Countries that rely most on Russian gas could suffer acutely, including Bulgaria, Romania, Hungary and Slovakia. Italy, too, is heavily dependent on Russian gas, but U.S. officials say Rome's shortfall could probably be filled from Libya and Algeria.

Ukraine will probably take the biggest hit. Its imports of Russian gas totaled about 28 billion cubic meters last year, or just over half Ukraine's total consumption. A senior Obama administration official estimates that even if you assume that Ukraine reduced demand, obtained reverse pipeline flows from neighboring countries and made maximum use of stored gas, it would still have a shortfall of 8 percent to 15 percent of its normal supply. If Ukrainians can't get that gas from Russia, they may be very chilly this winter.

What if a new Cold War develops and Russian gas exports are halted entirely? In that case, the Total study warned, "Winter demand could not be satisfied" in Europe, because "there is simply not enough gas to cope with no Russian exports." U.S. officials agree.

U.S. analysts doubt that Russia will halt gas exports, even through the Ukraine pipeline. That's because Moscow needs the money. Supply disruptions would "decimate the Russian gas industry and starve Gazprom" when it needs money to invest in new facilities, argues the senior administration official.

Russia's energy weapon is potent, in the short run, but its impact will decline sharply over the next decade as U.S. production of shale oil and gas rises — and America becomes a major energy exporter. By 2020, according to administration estimates, the U.S. could be able to export over 90 billion cubic meters of LNG annually, or about half of the gas Russia now supplies Europe. At that point, Moscow loses its chokehold.

The trick for the U.S. and Europe will be navigating the next few years. This transition will be impossible without the dreaded buzzword of an "energy policy," coordinated across the Atlantic, which gives private companies clarity and confidence to invest. Europe may be facing a cold winter, especially after Thursday's horrifying shoot-down of the Malaysian jet, but there's a possible warming trend ahead.